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Wall Street plowed higher on Thursday, with the blue chips zooming past the 12000 level for the first time since August, after European leaders crafted a plan to stem the region's sovereign debt crisis.
After Thursday's surge, the blue chips are poised to make their best October performance on record. Indeed, the Dow is more than 1,500 points off of its 2011 lows, and within roughly 600 points of its highest close. Meanwhile, volatility plunged 15% on the day, and yields on government debt rose, indicating traders are rushing back into equity markets.
Financials were the best performers, followed by energy and basic materials shares. Defensive stocks, like healthcare and consumer staples, however, lagged far behind the broader markets.
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Wall Street has been driven higher and lower by headlines from across the Atlantic in recent months as market participants have fretted over the specter that the euro zone debt crisis could spark another credit crunch and seize already fragile global economies.
Policymakers meeting at a summit in Brussels forged a deal early Thursday morning that analysts say represents a major step forward for the 17-member currency bloc. Private holders of Greece's government debt agreed to a voluntary writedown of 50%, potentially staving off a default, and a pushing the embattled country's level of debt as compared to economic output down to 120% by 2020 from 160% presently. There were worries by market participants that a default by Greece would weigh heavily European banks, which had seen their shares decline heavily.
The leaders meeting at the summit also agreed to leverage the $610 billion European Financial Stability Facility "four of five fold," which is expected to boost its firepower upward of $1.4 trillion, depending on how it is deployed. Additionally, European banks will have to boost tier-1 capital levels to 9% by June 2012 to provide a bigger buffer against sovereign exposure.
Still, doubts remained Europe's ability to quickly finalize the agreement that was reached Thursday morning.
The statement by European officials "was big on words, but short on substance," said Peter Dixon, an economist at Commerzbank Global Equities, noting that European leaders have in the past crafted grandiose plans but failed to follow through.
The euro soared 2.2% to $1.4022, European blue chips spiked 6.1%, while global banking shares were up close to 5%. In comparison, if the Dow were up 6%, it would be a more than 700-point move for the blue-chip index. The dollar tumbled 1.6% against a basket of six world currencies.
Traders will also have a slew of U.S. economic data and corporate earnings to mull over on Thursday.
A first reading on third-quarter Gross Domestic Product showed the economy expanded at an annualized pace of 2.5%, dramatically quicker than the 1.3% the quarter prior. The report came inline with analysts' estimates.
First-time claims for unemployment benefits fell slightly to 402,000 last week from 404,000 the week prior. Economists had been expecting a drop to 400,000. Claims have been stuck around the 400,000 mark for several weeks, further evidence that the labor market is still struggling even as the broader economy appears to be picking up steam.
Data on the housing market came in well below expectations. Pending home sales plunged 4.6% in September from August, missing forecasts of a gain of 0.1%. However, pending home sales are up 6.4% from the same period last year. Signed real estate contracts are seen as a forward-looking indicator. The housing market has been very slowly recovering after being slammed during the recent economic downturn.
Earnings season is in full swing this week, with several big name companies reporting.
ExxonMobil (XOM), the world's biggest publicly traded oil company, said it earned $10.3 billion, or $2.13 a share, topping estimates.
Procter & Gamble (PG) posted fiscal-first quarter earning of $1.03 a share that met Wall Street's expectations. The consumer products giant said its sales jumped 8.9% to $21.92 billion for the quarter. Medical company Bristol-Myers Squibb (BMY) unveiled profits of 61 cents a share, excluding costs, on revenue of $5.35 billion, both topping analysts' forecasts.
Oil and gasoline got a big boost from a substantially weaker dollar, and rallying equity markets. Light, sweet crude jumped $3.76, or 4.2%, to $93.96 a barrel. Wholesale RBOB gasoline rose 9 cents, or 3.4%, to $2.74 a gallon.
Gold rose $24.20, or 1.4%, to $1,748 a troy ounce. Treasury yields pointed higher as investors moved back into equity markets. The benchmark 10-year note yields 2.291% from 2.210%.
European blue chips soared 6.1%, the English FTSE 100 jumped 2.9% to 5,714 and the German DAX spiked 5.4% to 6,338.
In Asia, the Japanese Nikkei 225 rose 2% to 8,927 and the Chinese Hang Seng climbed 3.3% to 19,689.